Anatomy of a stealth tax

On Wednesday, Kelly Phillips Erb of Forbes published an absolutely fascinating article on the “Stop the Student Loan Interest Rate Hike Act of 2012.”  In case you don’t remember, because the White House has shoveled out four or five fresh distractions since then, it was the bill intended to… well, you can get the picture by just reading its name, right?


Erb notes that only three lines of the 1,571-word bill actually address student loans. 

The remaining legislative succotash covers a stealth tax hike targeted at small businesses.  And I do mean “targeted,” because the language expressly exempts large corporations from the tax:

Specifically, the tax is targeted at certain shareholders in the fields of “health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.” So, professional services.

And only small businesses. Really small businesses. The tax is targeted at those businesses “if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation.” It hits shareholders whose modified adjusted gross income (MAGI) is $250,000 or more for married taxpayers and $200,000 or more for individual taxpayers (keep in mind that S corporations are pass through so that the paper “profit” of the business is passed through to the taxpayers whether or not they actually receive the money).

To be clear, the limit would mean that bigger businesses – those with lots and lots of professionals who are shareholders – would be exempt from the increase. So if KPMG were an S corp? Exempt. Your local CPA? Not exempt. JPMorgan? Exempt. Your neighborhood broker? Not exempt.

It was fairly common knowledge (among conservatives, anyway) that Obama’s sop to student voters was meant to be financed by a tax on small businesses.  It’s still rather sickening to discover how carefully this tax was targeted. 

The average mainstream media consumer probably doesn’t know about the small business tax at all.  They were simply told that a bill to keep student loan rates from increasing by 100 percent was voted down in Congress.  If they think about the funding mechanism, they assume it was either the pocket lint of billionaires, or processed unicorn farts from the basement of the Treasury Department.  Don’t double my rate, man!

As Erb recalls, this isn’t the first time Democrats have tried to hammer small business owners with this stealth tax.  They also slipped it into the “American Jobs and Closing Tax Loopholes Act of 2010,” which at least mentioned “taxes” in its title, but didn’t specify that it would be raising taxes on the folks who create most of those “American jobs.”

This sort of thing happens all the time.  Legislation always gets branded with feel-good names.  Dozens, or hundreds, of little surprises lurk in obscure clauses and last-minute amendments.  The most poorly written and destructive bill of our lifetimes, ObamaCare, is technically called “The Patient Protection and Affordable Care Act,” but it’s making health insurance less affordable.  Just ask the students of Franciscan University, which just dropped its health insurance plan because of President Obama’s “signature achievement.”  As a result, students will pay twice as much for medical insurance.

Hey, man, don’t double my rates!

The core principles of our republic vanish in these misleading bills, as the average citizen of the United States no longer has any idea what his elected representatives are actually voting on.  Somewhere in America this November, a small business owner who never took out a student loan, but is convinced “doubling the rates” is an act of thoughtless cruelty, will vote against one of the Republicans who blocked a hidden attempt to jack up his taxes.


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